#eurusd

Any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy, according to economists polled in a Financial Times survey.

The FT survey of 32 eurozone economists, mainly working in the financial sector, conducted in mid-December, found most expected the ECB to launch QE in 2015 — catching up with the world’s other main central banks that have all bought large quantities of sovereign debt since the last financial crisis.

Twenty-six economists forecast the central bank would start purchasing government bonds this year, while five thought it would not. One did not respond to the question.

A stuttering recovery and a worrying drop in inflation have raised fears of another financial crisis in the currency bloc and put pressure on policy makers to cast aside powerful opposition from Germany and begin purchasing sovereign debt.

ECB president Mario Draghi last week gave his strongest signal yet that the central bank would extend its asset purchases to include sovereign debt in the next few months. A decision could come as early as the next governing council meeting on January 22.

FX markets have shown greater volatility, with volumes higher across G10 space than we’d normally expect to see over the US Thanksgiving holiday. The Us dollar has reversed most of its 100-point demise following the weaker US data readings this week and as we await the EU CPI reading for November.

The much-awaited decision from OPEC ignited downside pressure on the CAD and the NOK as the committee (as expected) decided not to cut oil production, which obviously has implications for countries on the brink of deflation. But it appeases those countries looking to stimulate their economies as importers of black gold.

Data out of Japan overnight was mixed. The CPI data came in slightly weaker at 2.9% versus the consensus of 3% as retail sales firmly beat expectations at 0.2% against the forecast of -0.6% with retail sales bang on at 1.4% with the Japanese jobless rate falling to 3.5%. This inspired the Nikkei to rally 1.23% as USD/JPY trades back on the 118 handle despite the month-end selling flow sighted from exporters.

The euro dropped the most in 12 weeks against the yen as European Central Bank President Mario Draghi said policy makers would broaden asset purchases if the inflation outlook for the region slowed.

Among the shared currency’s 16 major peers, only Switzerland’s franc fell, dropping amid speculation the nation’s central bank is intervening to defend a 1.20-per-euro cap. The yen strengthened, paring a fifth straight weekly drop, after Japan’s Finance Minister Taro Aso said the currency had depreciated too rapidly. Australia and New Zealand’s dollars climbed after China cut interest rates for the first time since 2012.

“The ECB is going to be delivering something more substantial at its meeting in December and his comments have been very much in line in confirming our view,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “People haven’t got as much of this trade on as they really want, which is why we’ve been seeing such a big reaction in the price to his comments.”

The euro weakened 1.3 percent to 146.32 yen at 10:17 a.m. New York time, reaching the steepest decline since Aug. 27. The shared currency dropped 0.9 percent to $1.2427. The yen advanced 0.4 percent to 117.75 per dollar, halting a six-day drop.

Mario Draghi defied the discontent and delivered a dovish message. EUR/USD is trading at the 1.2360 handle. What’s next for the single currency?

The team at Danske lays the potential path:

Here is their view, courtesy of eFXnews:

The ECB press conference today was clearly dovish in both Mario Draghi’s tone and the actual change in statement. The ECB now officially targets a balance sheet the same size as in early 2012 (Draghi said March 2012 during the Q&A), which is effectively a target of EUR3trn. This is an increase of EUR950bn from today’s level.

So, Draghi did it again. He speaks out of the manuscript initially – this time mentioning the size of the balance sheet in 2012 as a soft target without backing from the Council – only to get it into the manuscript subsequently.

…The ECB was clearly dovish at today’s press conference. EUR/USD fell 1 figure on the press conference and we believe it has further to fall. In our view, it also reflects that the market is very keen to buy the USD and sell the EUR and is using any opportunity to express this view. We forecast EUR/USD will reach 1.20 in six months time.